|
Government receives interim IMF endorsement
On 24 January, the board of the International Monetary Fund (IMF)
approved a US$ 2.98 billion stand-by credit arrangement for Argentina,
which is designed to cover debt payments to the IMF through the end of
August of this year. In addition, Argentina has received permission to
extend some US$ 3.8 billion in payments that would have been due in the
first eight months of this year. Along with the total of US$ 6.8 billion
for this year that is being rescheduled over the next five years, the
IMF is permitting Argentina to roll-over an additional US$ 5.1 billion
from last year. Both the government and the IMF have expressed their
interest to replace the transitional agreement with more permanent multi-year
accord, after the presidential elections on 27 April. The transitional
IMF agreement has enabled the Duhalde administration to cancel arrears
with other multilateral institutions, such as the World Bank and the
Inter-American Development Bank, which will now be able to resume
existing programmes.
The new IMF arrangement focuses on establishing fiscal and monetary
discipline. On the monetary front, the Central Bank will seek to use
monetary growth as a nominal anchor for inflationary pressure. Monetary
policy for the first half of 2003 will be geared towards maintaining the
monetary base at its year-end 2002 level. (The agreement states that
operationally, monetary authorities will control the monetary base by
acting on the Central Bank’s net domestic assets and will limit
international reserves sales for intervention in the exchange rate
market, within the framework of a continued flexible exchange rate
policy.)
On the fiscal front, the government has pledged to strive for a 2.5% of
GDP primary public sector surplus this year, which will require
legislative approval of a series of revenue-generating measures and
spending cuts by the end of March. Additionally, provinces will be
expected to approve administrative reforms and spending controls
underlying bilateral agreements with the federal government by mid-May
of this year.
Finally, the government has promised to progress on structural reforms,
including institutional and legal reforms needed to strengthen the
banking sector, a comprehensive tax reform and strengthening of the
Central Bank autonomy.
Congress approves 2003 budget
In the week of 27 January, the legislature approved the 2003 budget,
which sees expenditures rising by 30% nominally over last year. As a
result, total spending is expected to reach 62.6 billion pesos (US$ 15.6
billion). The budget does not anticipate the renegotiation of external
debt with private international debtors to materialize this year, as the
calculated debt service costs reflect payments on certain guaranteed
loans and bonds only. As a result, the amount of privately owned public
debt in default is anticipated to rise from US$ 12.4 billion to US$ 26.9
billion, as new debt payments come due. Economic growth, rising prices
and higher exports are expected to raise government income this year. In
addition, the temporary November decree to lower the value-added-tax
(VAT) will not be maintained, which will bring the VAT rate back to 21%
from 19% previously. Similarly, specific fuel-related tax increases will
help further buffer the government income flow. As a result, the primary
surplus is expected to reach 2.7% of GDP. The pickup in economic
activity is likely to influence government coffers favourably. According
to the government, tax inflows are developing well. Total tax collection
rose 64.2% in nominal terms in January over the same month last year.
Consensus participants expect the fiscal balance to remain stable, as
the non-financial sector public deficit is anticipated to rise
moderately from 1.4% of GDP in 2002 to 1.8% this year.
Public service tariffs hiked
On 29 January, the government raised public service tariffs. Electricity
tariffs for the average consumer were hiked 9.0%, while gas tariffs were
raised 7.2%. The government also raised electricity rates for industry
(16.0%) and commerce (18.0%) prices for users of compressed natural gas
(between 8.0% and 19.0%). Low consumption residential users of
electricity (that benefit from social protection pricing schemes will
not see increases to their tariffs. According to government estimates,
approximately 45% of total users fall under the social pricing structure.
The government adjustment of public service tariffs was well below the
30% to 50% increase sought by private utilities and was also below the
30% figure demanded by the International Monetary Fund (IMF). The
government claimed that the main consideration was to limit the impact
that rising public service tariffs would have on inflation. As a result,
the government has also negotiated with producers and distributors not
to raise fuel prices for another three months, despite the current spike
in the international oil price.
In January, consumer prices rose 1.32%. The price increase was in line
with Consensus expectations and helped lower the annual inflation rate
to 39.6%, which is down from 41.0% in December 2002. The public service
tariffs increase is likely to exert some pressure on consumer prices.
Nevertheless, the recent currency strengthening, if persistent, could
serve to further buffer consumer prices from stronger increases. In
January, the peso appreciated 4.2% in nominal terms versus the US$,
following the 6.8% appreciation in December. As a result, the currency
has strengthened to 3.25 pesos to the US$. However, participants see the
currency rebound as reversing throughout the year with the peso closing
at 3.98 to the US$ by year-end, a 15.1% annual depreciation. |
Economic Forecasts
from Top Financial Institutions. Order
here!